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The Law of Diminishing Marginal Returns
The law states that when you add more and more of a variable input to a fixed input the extra output you gain from each additional variable will decrease.
Variable and Fixed Inputs
In economics, we class labour as being a variable input and capital and land as being fixed (IN THE SHORT RUN)
Marginal Output Formula
MO = change in total output/change in quantity of workers.
Why is it only a short run concept?
IN the long run, all inputs can be altered so diminishing marginal returns cannot exist.
